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Financial Services Law Insights and Observations

FTC settles with mortgage analytics company over vendor oversight deficiencies

Federal Issues FTC Enforcement Consumer Protection Privacy/Cyber Risk & Data Security Gramm-Leach-Bliley FTC Act Third-Party Vendor Management

Federal Issues

On December 15, the FTC announced a settlement with a Texas-based data mortgage analytics company (defendant), resolving allegations that the defendant violated the Gramm-Leach Bliley Act’s Safeguards Rule (Safeguards Rule) and the FTC Act by failing to ensure a third-party vendor hired to perform text recognition scanning on tens of thousands of mortgage documents was adequately securing consumers’ personal data. The FTC’s complaint alleges that the vendor stored the unencrypted contents of these documents on a cloud-based server without any protections to block unauthorized access, such as requiring a password. The data contained sensitive personal information, including “names, dates of birth, Social Security numbers, loan information, credit and debit account numbers, drivers’ license numbers, credit files, or other personal and financial information of borrowers, as well as of family members and others whose information was included in the mortgage application.” According to the FTC, because the vendor did not implement and maintain appropriate safeguards to protect customer information, the cloud-based server containing the data was accessed approximately 52 times. The FTC claims, among other things, that the defendant failed to adequately vet its third-party vendors and never took formal steps to evaluate whether the vendors could reasonably protect the sensitive information. Moreover, the defendant’s contracts allegedly did not require vendors to implement appropriate safeguards, nor did the defendant conduct risk assessments of all of its vendors as required by the Safeguards Rule.

The proposed settlement requires the defendant to, among other things, implement a comprehensive data security program and undergo biennial assessments conducted by a third party on the effectiveness of its program. Additionally, the defendant must report any future data breaches to the FTC no later than 10 days after it provides notice to any federal, state, or local government entity.

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